SILVER PRICE NEWS - The silver price advanced 0.6% to $18.36 per ounce on the first trading day of the week. The price of silver has climbed $1.46 per ounce, or 8.5%, thus far in 2010 - outpacing its sister precious metal, gold. Fortuna Silver Mines (FVI.TSX), which has been a standout in the silver stocks sector, announced earlier today a pre-feasibility study for the company’s 100%-owned San Jose Silver-Gold Project in Oaxaca, Mexico.
Highlights of the study included 3.5 million tonnes of probable reserves with 23.2 million ounces of contained silver and 181,000 ounces of gold (average head grades of 205 grams per tonne (g/t) of silver and 1.6 g/t of gold). San Jose contains inferred resources of 2.7 million tonnes with 17 million ounces of contained silver and 133,500 ounces of contained gold not included in the reserves figure or the economic model.
Average cash costs per silver equivalent ounce over the life of reserves came in at $6.90, while the production plan was projected at nine years based on existing reserves. At an 8% discount rate, the after-tax net present value of San Jose is $36.4 million, with an 18% after-tax internal rate of return. The financial results assumed a silver price of $15.12 per ounce and a gold price of $897.51 per ounce, each more than 20% below current market prices.
The Canadian-based silver mining company went on to note several “areas of opportunity” that management believes can improve the profitability of the project - including 25.2 million ounces of equivalent silver above cut-off grade not included in the pre-feasibility study, as well reducing pre-production capital expenditures and life of mine costs related to smelting and refining.
Commenting on the results, Jorge Ganoza - Fortuna’s President, CEO and Director - stated that “Management is pleased to report the results of the pre-feasibility study of San Jose. The study shows a project that is viable with conventional mining and processing methods with healthy economic returns. It has been challenging to incorporate into a study of this nature all the areas of opportunity that in Management’s view, make San Jose a robust project. The old miner’s adage: ’drill for structure and drift for reserves’ holds true. The limitation to model an underground mine including only Measured and Indicated resources for reserve conversion meant that a significant amount of Inferred resources located in the upper portions of the mine, where mining takes place in the initial years, are not accounted for in the mine plan. Under this scenario, the mine demands more upfront development and a longer time to achieve the targeted 1,500 tpd in the pre-feasibility study. Management is now focused on advancing San Jose and capitalizing on this and other areas of opportunity.”
While the silver price has climbed 39% over the past year as a function of the reflation trade and ongoing economic recovery, shares of Fortuna Silver Mines, coming into today’s session, have climbed 168% - more than four-fold that of the price of silver. While Fortuna did decline on the news today, the San Jose pre-feasibility study represents the next step in Fortuna’s evolution as a multi-mine operator - a fact that distinguishes it from most of its peers.
